Summary
The USD/JPY rose to just below 164 in July before plunging to around 157 on speculation that the Japanese authorities had intervened and amid concerns over currency policy coordination among Japan, the US, and South Korea. Yen weakness, a rise in long-term yields, and fall in share prices as the USD/JPY rose toward 164 reflected fiscal concerns, the trade deficit, and upside inflation risks. Against this backdrop, the BOJ left its policy rate unchanged but expressed greater concern over upside risks to inflation, leaving open the possibility of a rate hike in September. In the US, rate-hike expectations receded after the FOMC meeting, leaving the dollar struggling to extend gains. Near term, intervention concerns mean the USD/JPY is facing greater downside than upside risk.